Business Studies

In your own words, describe the differences between the industrial organization (I/O) and the resource-based models of above-average returns. As an analyst, how would you determine the significance or validity of these models with respect to a given industry?

ANSWER

INDUSTRIAL ORGANIZATION AND THE RESOURCE BASED MODEL.

  The Industrial organization model focuses on a firm’s performance in relation to its external environment and market position. The Industrial Organization model is environmentally driven. The Resource Based Model focuses on the internal issues of a firm like the internal resources and capabilities which determine a firm’s performance.

Differences.

The Resource Based Model explains that a firm is able to achieve above average returns because of its internal uniqueness, resources, competitive advantage and capabilities such as having skilled employees, capital equipment and patents. Thus this model focuses more on the weaknesses and strengths of the internal resources and capability endowment relative to their competitors while the Industrial Organization Model focuses on the external environment which is made up of the industrial environment, the general environment and the competitor environment and its competitive advantage is having information and predicting the next moves of its competitor.

The Resource Based Model has factors that determine its profitability like the type of resources a firm has, the amount of resources and the nature of the resources whether they are of good quality and are unique while in the Industrial Organization Model profits is determined by the characteristics of the industry and the positioning of the industry which is basically locating an attractive industry that has high potential for above average returns.

The significance and validity of these models with respect to a given industry can be determined by checking how an industry is improving and developing its internal capabilities and how it spends its resources.

References.

Kim, M., Song, J., & Triche, J. (2015). Toward an integrated framework for innovation in service: A resource-based view and dynamic capabilities approach. Information Systems Frontiers, 17(3), 533-546.